good morning. the bulls are in control. the s&p 500 closing at a five-year high. it's one point above september's top, a level not seen since before the financial crisis hit. but now, a new week and some new tests, key economic data and the start of earnings season. it's monday, january 7th, 2013 and "squawk box" begins right now. good morning, everybody. welcome to "squawk box" here on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin the. and our top story this morning, the global markets. who will begin the first wul week of 2013 today. the s&p rallied 4.6% last week. the dow was up 3.8%. so a great start to the year if you are a bull. three major averages posted their best weekly gains since

december 2007. the best gauge for fear in the motorcycles, the cbo volatility index plummeted last week. if you look this morning to see where things stand, you'll see u.s. equity futures are indicated just slightly lower. right now, dow futures down about 35 points. same story in europe. if you look at the early trading there, you'll see a slight pullback across most of these markets. the cac is off .3 .5%. major asian markets overnight, things barely budged with the hang seng and shanghai was slightly higher and the nikkei was down by about .8%. andrew. >> and werings season officially begins after the bell tomorrow. that's when alcoa will be posting first quarter results.

earnings are expected to rise. let's get a quick check on the week's economic calendar. a quiet start today. tomorrow, we'll be getting the nfib small business sentiment survey. we're going to get the consumer credit and on thursday, weekly jobless claims and wholesale trade and finally on friday, international trade and import price pes.becky mentioned overnight trade in europe. banking stocks have been rallying there and that's in large part as a result of news from global regulators over the weekend. basel giving banks four more years to meet global rules on minute mull holdings to businesses and cob assumers and you can feel like you're on the front page of the "wall street

journal." because talk about this as some of the -- >> i think the good news, though, is that you're not tied to sovereign debt, which we know is not as safe as had been heralded. but -- >> i think a lot of people are feeling a lot better. this is going help the banks, potentially help the economy. >> right. >> and mind you, it wasn't clear that the u.s. banks were going to be involved in any of this. >> they're already there, right? what is the super competitiveness? >> oh, no. the u.s. banks have not followed. and it's unclear whether they ever will. jamie dimon came out and said basel three is un-american. there is still question about what to do. >> but our banks are in much better shape. >> yes. the swiss banks, though, ooubs and krit swiss already went to basel iii. >> and they're at a

disadvantage? >> they're at a huge disadvantage. they expected this to happen. i don't know how far -- they were all focussing on 2015. we'll see. >> and wouven my resolutions was i was going to start stepping out a little fashionwise. so i put this on today. it's not white. it's not blue. it's pink. and i am trying to set some new ground for myself and then -- i mean, i look at that thing that -- why are you on me? why are you on me? who is directing? >> go to andrew. thank you. >> it's a gray shirt. >> can you get any closer on that? >> it looks better -- you have to see the pattern. and then the collar itself, that's one of four different collars you can have on that shirt,ite? that comes off, right? >> no. >> that's one of those detachable. >> i think it does look better on camera.

>> it's okay. >> when i look at it on camera, take another shot from andrew's head on. >> does it steal my thunder, sort of? >> it looks better on camera. it really does. >> that's a backhanded compliment. >> no, but we talk about that all the time. it looks better on camera. that looks good on camera. >> it looks good? >> it does. take another look at the shot. >> there it is. we're having a debate about -- >> is it crying i'm young, i can do what i -- what is it saying? >> i don't know what it's saying. i just know that i may be crying later. >> you're so nice. >> no, i'm not being nice. by the way, happy birthday yesterday. >> thank you. >> stepping out, and here i am and then you come in and i can't hang. i just can't. in other financial news, a $10 billion, with a "b," settlement to resolve claims of

foreclosure abuses. ite i'm not going to call it necessarily a shakedown, really. but it's $10 billion and it mainly is covering things like flawed paperwork and botched loan modifications. not even necessarily anything done with malice of forethought to try to make money. just really some botched paperwork. however, a house joet sight committee would like to look at any settlements. the xt on oversight and government reform wrote a letter to fed chairman ben bernanke in the office of the controller, the currency on friday. the committee was more information on how a settlement amount is to be determined. both parties talking to the

sunday talk shows. their positions ahead of the debt ceiling sight, this is going to be ugly. >> i think tax reform ought to be revenue neutral as it was during the reagan years. we've resolved this issue. we don't have that problem because we tax too little. we have it because we spend way, way too much. so we've settled the tax issue. the question is now can we address the single biggest threat to america's future? and that's our excessive spending. >> we're talking about looking at the tax code, putting everything on the table from the standpoint of closing loopholes and we know we can do that. >> we will talk more about the budget battle at 7:30 eastern time with former governor ed rendell. but, obviously, the two sides are far apart at this point. in our d.c. news today, president obama is expected to nominate former republican senator chuck hagel as defense secretary. republicans call him a

controversial in your face pick. he criticized the iraq troops that opposed unilateral sanctions as iran and he once said that being gay impended effectiveness. there have been people on both sides of the aisle who have been mad about this. >> so what's the point? it's so weird, isn't it? >> that they've chosen him? >> yeah. both sides, neither side. sometimes you pick a republican that is bipartisan, but this is the one republican that most republicans -- >> he likes him for some reason. >> and it's going to be a battle. why do you like him? >> i don't like him. i don't know if i like him or don't like him. >> with all the act money and everything, why do we need a controversial pick for this? when neither the democrats nor the republicans seem to want him. it's going to be a protracted battle.

>> i don't think you want to get in the middle of that. >> he served with valor in vietnam. that's part of why he's standing by him. but you would initially think they would have gone against after some of the initial blow backs. >> they've made the decision. he was floated and then when the issue was floated, it was met with lots of -- on both sides, it was met with -- i don't know. let's check on the markets this morning. the -- as we say, they are down about 33 points after a trading at medium term highs last week. and the vix is low. we talked about how you need a wall of worry and when fear gets low, you wonder where is the wall of worry? but we are up near the high end of the recent trading rage. chick out crude which had a good week, as well. the ten-year definitely responded to everything that's happening, 1.9%.

we have been once again a big percentage move up from 1.6. but still below 2%. the dollar has been something to watch in terms of the euro. but even more against the yen and finally gold was -- after the fed comments about maybe not, you know, being accommodative forever. hit the gold markets pretty hard last week. >> it's time now for the global markets report. ross westgate standing by in london across the pond. mr. westgate. >> hey, andrew. thank you very much for that. you can see after the gains we had last week, softer this morning. decliners outpacing advancers by a ratio of around 6 to 3, somewhere around that margin. the ftse 100, when you're a stock in general up at 22-month highs, friday, up .5%. right now, the if it is sfts is down .25%. we're not far away from the all-time highs on the xetra dax 7740.78 is up near the all time

high. the cac 40 is down .5%. ibex up .1%. no doubt about the standouts, that is indeed the banks after the basel committee that supervisors bank regulation, says the liquidity cover ratio, which is the thing that forces banks to hold enough cash and easy to sell assets, they're changing that in terms of what they need to hold and they're extending the time schedule for which it will be brought in. they're also going to change equities, corporate tet, residential mortgage-backed securities. so what they can hold is going to be and there's, it's not going to come in now. they were going to come in in two years on january the 1st, 2015 and and have extended that by four years. they now have until january 19th to meet. unicredit up 4% in italy. credit agricole, up 4.4%. this sector by and large, the

standout gainer today as a result of that. and as far as the debt markets are concerned, peripheral yields, just over the 5% mark. gilt, also up at eight-month highs, 2.10%. we have a bank of england meeting this week. near not expected to change their asset buying program or interest rates, either. we start off the debt sales. that's why we stand ahead of the u.s. open. i'll hand it back to you guys. >> thank you, ross. appreciate that very much. coming up, you can't afford to wait until 9:30 to see how the markets will open. we'll head to the future pits. but first, a 489 pound bluefin tuna was sold for a whooping $1.7 million. it's the first fish auction of the year in tokyo this weekend. that's about $3,600 a pound.

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welcome back to "squawk box" this morning. take a look at how the futures are setting up. dow looks like it would open down about 37 points.

the s&p 500 off about 5 points and the nasdaq off about 8 points. s&p 500 up 4.6%, up at a five-year high after the financial crisis. making headlines this morning, citigroup's new ceo michael koshette is expected to name his new ceo. the bank is due to submit its plan for such things as buying back shares and increasing dividends as required under the bank's stress test. and we're going to be hearing a lot more this week about what's going on with citigroup. >> health insurance companies across the country are seeking and winning duj double digit increaser for some customer necessary some situations. these increases are particularly noteworthy, because one of the biggest operatives open obama aps labor calls is worrying. anthem blue cross 26% and blue

cross of california is 20% for some policyholders. this is a situation where some people who do not have employer provided insurance have to buy it on their own. they are particularly vulnerable to higher rates. this is a big, big story for people who don't have a big company who are paying the way. and nba pay is dropping. "the wall street journal" reports a survey by the graduate management admin council finds that for graduates with experience of three years or less, median pay was $53,900 in 2012. it was actually down 4.6% from the level in 2007 and 2008. now to today's national weather forecast. mike seidel joins us from the weather channel. good morning, mike. >> anyway, good morning. it will be seasonally cold in new england, but the not bad. 38 in new york this morning. that's your average high.

a lot of sunshine out there. washington, it's 46. and no big storms in the immediate future. down south, sunny, dry weather. frosty from atlanta to nashville. temperatures running at or above average. back to 60. new orleans with showers across central and florida. ft. myers, miami, and those areas will stay around 80 degrees of the front of the week. no major issues with this. minneapolis, st. paul after being in the frigid weather today. was the big story? a big travel day coast to coast. national rarity not showing a whole lot right now. in the pacific northwest, we have a little rain and snow today. the cascades may get a foot or snow, so watch travel on interstate 90. temperatures in seattle will once again be in the mid to upper 40s. southwest and the desert, it's cool for the season in phoenix. now, looking ahead, we'll show you the storm coming out of the

southwest. it's going to pick up steam. this will be more of a storm. houston, maybe as far as norlt on the golf coast air. but there is so much warm air going into january and february, everybody gets rain. chicago, nashville, rain. joe, this coming week, that big snowpack that covers two-thirds of the country about a week ago will be eating away by warmer temperatures and rain. no big snowstorms in the forecast, at least for this week into next weekend. back to you. >> yeah. they got all our cold weather over in china, apparently. coldest winter in 30 years. 4 degrees colder than normal and we don't have any snow. we need some snow. you just mentioned seattle. speaking of seattle, make, have you look at the drudge report,

rarely do you see these types of headlines. the seahawks won their first playoff road game since 1983. did you see the chairman of the seahawks coming walking out at the end? >> no. >> beating washington, 24-14. redskins looked incredible for the first quarter, raced out to an early 14-0 lead. before it became clear that rg3's knee was not feeling too well. the seahawks rallied by knocking robert griffin iii out of the ga game. it was -- >> wa about the center, though? >> they didn't knock him out. but watching that, the seahawks are going to play atlanta next sunday. they showed -- i mean, i was sick to my stomach. >> and the picture -- >> that's because it looked like i had a flashback to joe theismann right there. >> it wasn't a broken leg, but

the way that it twisted looked so hideous, knowing that it was already sprained and hurt. >> they're awaiting mri results today. but i have to hand it to seattle. >> what a great -- >> i didn't realize that -- i had not watched him very much. >> he's not tall and he can run. >> he was calm, cool and collected. >> do we have a shot of paul allen? >> i switched over about four minutes before the end of the game because i figured it was over at that point. >> did you, really? yeah, it was pretty much over. and yesterday's other game, the ravens used a suffocating defense to hold indianapolis to just three field goals. it was 24-9 win over the colts and ray lewis and company will go to denver. >> ray lewis is from rutgers. >> ray lewis or ray rice? >> no, ray rice. i'm sorry. ray rice. i can talk about good game for about 30 seconds. then i talk a little too long. >> if you don't really follow

it, you should just not talk. the top seeded -- >> look at me. like somebody else we know. in hockey news, after 113 mostly bitter days in the nhl labor lockout, the league and its players forged a new ten-year collective bargaining agreement following a 16-hour marathon bargaining session. the shortened season is expected now finally to start within a couple of weeks. now let's get to the markets. scout bower joins us from the cme. for starters, can you explain, we like sometimes to see a wall of worry. a lot of sometimes, the mblth goes up with there's a lot of concerns. now we see the vix trading lower. is that showing that we're getting near the high end of a range because people are too complacent or can this rally continue? >> no. i think it's going to continue. and what the vix is showing right now is there is that 90% of what happens was based on the fiscal cliff. with the exception of some

economic news and, really, the start of earnings season, the next big worry or concern out there is the debt ceiling. so you see the current vix number at 14. but vix futures really are trading a bit higher than that. if you go out to march, april, you're seeing them trade a bit higher. so there is some bit of concern, some sentiment maybe to the down side going out. but for right now, the current here and now, this bullish trend is really not going to stop. earnings coming out, you know, the last earnings price that we saw, negative to positive guidance. i think it was like 357 to 1. we haven't seen that in about ten years. so i think that guidance number res so low coming into this quart quarter, we're going to see some pretty positive numbers. not only positive numbers, but i think with all the great economic news, and i say great because i'm comparing it to the last five yearsing on so, all

this news coming out, i think we're going to see great earn g earnings, we're going to see positive guidance. vix is going to stay in a fairly level range here. i'm not saying it's dipping below 14, but i wouldn't be surprised if we see it trade 14 to 16 over the next month or so. and i think now that we've reached, you know, the 1465, 1466 level, i think it is higher from here. the sentiment is really bullish out there, and i know that the vix has this opposite sentiment and people feel that when the vix gets really low, that is the time for concern and vice versa. but in the current stance that we are right now, it looks like we're going higher. >> and we should be able to get an idea not only from the last three quarters -- i'm sorry, last three months when companies report, but they should be able to give us some clarity on the

first quarter and whether the fiscal cliff impacted some of their decisions. we'll see whether that's an unfounded fear. a lot of economic numbers don't seem to fair out whether people were rejected prematurely. >> i totally agree with that. the one thing i'm going to be focused on is we saw so many companies that prepared for the worse with the fiscal cliff and really based their hiring and their unemployment or employment numbers based on the fiscal cliff. well, now that that is behind us and now that that is hopefully a foregone conclusion, let's see if those employment numbers now start to pick up a little bit. let's see if some of these fortune 500 companies, some of the big s&p 500 companies start hiring again. that is what i'm really going to be looking for. and if we can get some of that into the marketplace, that's what i really see as the catalyst going into not just the first quarter earnings, but really setting the stage for the rest of the year. >> all right. we just had people last week that are in a position to know

understand indicate that to do this cliff or to do this sequester that they're going to want to basically -- the democrats are going to want a similar amount of revenue that they've already got and the 60 billion a year or 600 billion over ten years, they're going to want another 600 from closing loopholes and mcconnell is saying that's a nonstarter. what happens if it becomes clear that the sides are far apart on the debt ceiling in two months? how does the market react to that? >> well, you know what? based on the two months that we just went through with the fiscal cliff with the negotiations every day coming out, no, we're not doing this, we're not doing this, you know, they're not showing any good faith here, that's what the market is going to feel like over the next two months. i don't know that there's going be much credence, honestly, coming out of washington. at least as far as the market is concerned, until we get down to that final week, until we get down to those final hours.

so i would expect that whatever we see coming out is really not going to affect the markets on a day-to-day basis like the fiscal cliff news is. you remember, you know, every day we saw a new headline. the market traded only on fiscal cliff news. economic news wasn't such a big factor. individual, you know, or news coming out of europe wasn't a big factor. i really think that the next two months is going to be based on earnings, based on employment growth and that's where we go. >> awesome. all right, scott, thank you. >> have a great day. >> see you later. >> as we've been talking about the s&p rallying to levels we haven't seen since the financial crisis, when we come back, we will ask about more queries that are likely to power the bulls in the coming days. that's right after this. i have low testosterone. there, i said it.

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. good morning. and welcome back to "squawk box" here on cnbc. i'm joe kernen along with becky quick and andrew ross sorkin. you've got the shirt. >> i'd like to approximately the viewers on this one. >> really? >> yes. >> our viewers can be cruel. >> or they could rule in his favor and overrule you. >> that will never happen with that shirt. that will never happen. making headlines -- making headlines -- you are making headlines. >> markets. >> a recovery team -- i'm short big time. i have a huge -- i'm like bill ackman on that shirt. that's the herba life of all

times. that's a pyramid scheme. start towing off shell alaska oil rig near the coastline. all elements are in place for towing operations so those should proceed today. federal regulators are suing jpmorgan jpmorgan. the national credit union administrations lawsuit alleging that washington mutual bank gave a false picture of $2el 2 billion in risky mortgage securities that it sold to three wholesale credit unions. jpmorgan failed to awashington washington mutual back in 2008. they said washington maushl misrepresented how risky the mortgages were. google's executive chairman has arrived in north korea. he wants a first hand look at north korea's social networking.

he arrived on a commercial air china flight with former new mexico governor bill richardson who is a friend of "squawk box." dow futures down about 40 points. s&p futures off by about 5.5 points. this is coming after we saw the market close. the s&p up 4.6% for the last week. closed at a new five-year high of 1466 on tri. that is just above september's high. by the way, this is a level we hadn't seen since september 2007. that might explain why you see a slight pullback with some of these numbers today. same situation in europe. if you look, you will see a modest pullback there, as well. the cac in france is down by .6%. overnight in asia, you saw some mixed results. the nikkei in japan was down about 89 points. the shanghai closed slightly higher and the hang seng was virtually flat.

if you take a look at oil price these morning, you can see at least right now they're down by about 50 cents. we've been watching the ten year and the yields there did move up significantly last week. the yeemtd was above 1.9% at 1.903%. the dollar is another story we've been watching closely after the fed minutes last week, suggested that at least some members of the fed did not want to break indefinitely and maybe turning around when it comes to qe3 this time next year. the dollar is down against the yen. finally, take a look at gold prices. 1,653.90 an ounce. >> okay. let's talk about .t markets this morni morning. zach, good morning to you. >> good morning. >> cover of the financial times, cover of the "wall street journal," cover of the "new york

times" business section, banks win an easing of rules of assets apause with massive rules and we're seeing bank stocks in europe up in a very big way. was this a capitulation in terms of the regulators wore should we think of this as a win broadly versus consumers in the economy? this stuff has been endlessly debated and argued mostly behind the scenes by people who love banks and regulation for the past three or four years. so i don't know if this is a victory for the banks. the argument is forcing banks to have higher levels of capital. there been some academic studies, recently, that may have very little to do and we've seen evidence of that, of whether or not banks asset capital in motion. so i think it remains to be seen whether or not banks actually become a little bit fringent about their credit requirements simply because of these regulations, which never went into effect, anyway, are eased

somewhat going forward. >> and do we worry, though, that this is going to create more risk, or no? >> look, i think the risk in the system remains the opacity from a complexity of these businesses and the fact that nobody, no matter how well they understand this industry can fully gauge the help of an extremely large bank. and nothing about the current regulatory framework was going to change that. if anything, it was going to make it more opaque. so, you know, i don't think we live in an awfully risky world compared to 2008, but nor are we ever going to live in a world where the risk is systemic global meltdown sess completely adds and we're going to have to get used to that and maybe we are. >> zach, earnings season begins tomorrow in earnest with alcoa. your sense on where things go? we had a huge week last week. does it hold up? >> alcoa is the worst benchmark of bellwether of earnings other than the fact that it's the first letter of the alphabet and reports earnings first. i don't think you'll see much in the way of exciting fourth

quarter news, just like you didn't see much in the way of third quarter news. and a lot of that is still -- whether it's concerns about the u.s. election, whether it's the effects of eurozone fear and the fact that businesses continued to claim uncertainty as a way of avoiding investment spending. >> is that argument off the table or is it still on the table? >> look, i think uncertainty is the favorite argument of business ceos where every about why they won't do whatever it is that they have no intention of doing, anyway. basically, we live in an environment where things are going to continue to change and businesses are going to feel money if they feel there's an end demand that justifies that. there's end demand in china, end demand globally and moderate end demand in the u.s. the reality is businesses have done relatively well for the last two or three years and will continue to. >> real quickly, herbalife later

this week will be making a big presentation trying to defend itself from bill ackmann. your thoughts? >> look, i happen to feel that waging your short selling campaign on the air waves a way of dictating stock price, i am personally uncomfortable with. i think it's the wrong way to go about investing because it raises all these questions of are you making a legitimate analysis of the underlying business of the company or are you trying to shift the momentum in order to make money off the stock direction? >> you don't think that bill ackmann is going out, and then selling without us knowing? >> no, i don't believe that. i just don't think that's the right way to go about shaping the investment climate. shaping a momentum around an equity name, i think it's more prudent and i would prefer people to wage those particular campaigns in the privacy of

their own investment balance sheet rather than in the public air waves. >> zach, we're going to leave tlit. thanks for joining us this morning. appreciate it. >> if you have any comments or questions about anything you see here on zach, e-mail us. coming up, the keystone pipeline clears one hurdle. coming up, a scary weekend at the box office. futures are a little lower this morning. ♪ ♪ [ male announcer ] some day, your life will flash before your eyes. ♪ make it worth watching. ♪ the new 2013 lexus ls. an entirely new pursuit. [ male announcer ] how do you make 70,000 trades a second... ♪

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governor of nebraska to make a final recommendation to the federal government on whether to go forward with the project approval from nebraska is considered crucial to final approval to the administration. the state department is expected to issue a draft of its own, separate analysis in the next couple of days. >> this story is the reason we were playing this after the break. this weekend at the box office, the texas chainsawmassacre 3-2 opened as number one. quinton terrintino's jango unchanged remained the second movie for the week.

>> you don't want to see that movie? >> no. >> ji 234 go? >> oh, that one. yes, that's okay, but i don't want to see texas chainsaw massacre. coming up, sports and much more. chairs coming up next. and then at 7:40, the man responsible for notre dame's investment is going to join us live. first, check out the major european markets in some early trading this morning..ous prot, impact life expectancy in the u.s., real estate in hong kong, and the optics industry in germany? at t. rowe price, we understand the connections of a complex, global economy. it's just one reason over 75% of our mutual funds beat their 10-year lipper average. t. rowe price. invest with confidence. request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully before investing. i am probably going to the gas station

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a lot of sports headlines this weekend. the bcs championship tonight, i don't know, 8:30. >> late. >> it seems like a personal affront. >> i don't like the idea that they're not playing it over the holiday season, too. >> yeah. the whole bowl game, the fact that it goes out this long, anyway, bothers so many people, and the fact that we are still playing college football. there are 35 bowl games. some less than 10,000 people at some of these games. >> what network has this tonight? >> it's one of those that need not be named. four letters. not three. >> let's not name it, then, because i wasn't going to put

down nbc, but brian shactman is here. and the nhl -- >> yeah, which one do you want to start with? >> he's a great hockey player, by the way. >> i'm -- it's funny because i was a d3 college player and average at best on my old player teammates and coach laugh when you say that. >> you're way better than anything we've seen. >> the first time when you did that -- the little -- in front to stop. i turn around and -- >> they should bring back the pictures with the black tooth for you guys. that was a pretty good promo. tonight's game would be the most wagered upon college football game ever. they're selling the stock, 30 seconds for a million bucks. alabama is favored by 9 1/2 points basically because they're that much better and notre dame, they're undefeated, but they won several games by squeaker margins. a lot of people feel this they

can't keep it close early, the tide will roll, no pun intended. but this game is big. these two teams have won more national titles in the national era. nick saban, 5.5 million buck aes year. that's as a college coach. >> what's the highest paid nfl coach right now? >> it's like 7 million bucks. and brian kelly makes about 2.4. that will go up, too. he's not the most popular kelly in the country. oregon's chip kelly will stay in college, probably, and not go to the nfl. >> really? >> yeah. for my opinion, he was the head coach of the university of new hampshire eight years ago and now he's if most popular coach in the country. >> but he's not going to stay? >> they think he's going to stay in oregon now. >> will he be the highest paid coach now? >> i don't know if he'll get saban type money. most people, let's face it,

don't care that much. right? >> oh. >> is that what you're saying? >> it's hard for me to say that because i might get in trouble. in terms of football and baseball and basketball it's still not there. but the people who love hockey go crazy for hockey. >> a nice little niche for nbc, too. >> does nbc lose on this? or it has to work when there's a strike? >> no, not anymore. >> now we pay. >> i know we pay for it. >> when you pay up front and there's a strike does the network -- >> absolutely gets hurt, yes. they have to fill programming. there's a different ad rate you charge for a hunting special -- >> but from the network -- >> like a clawback? the league doesn't say we're going to give you some money back. >> no. >> they're going to play a 48-game schedule. as long as they can in the playoffs. >> have they reached a solution that's going to keep this from happening again? >> gary bettman had three or

four at least. it's a ten-year deal. they can opt out after eight. you're going to have labor peace for at least eight years. as soon as they get some momentum:3.3 billion in revenue last year. looks good. have a tv contract with nbc and then they do this. >> they keep shooting themselves in the foot. >> they wanted to break the union. and they wanted to get all these concessions. and they did pretty well. but i mean from my perspective and i grew up and played hockey my whole life, it seems and i don't like to use this word, you're a mom now, i don't like to use the word stupid in my household. it just seems stupid to take that momentum and pull it away. but when they're talking about most of their teams are struggling to even turn a dollar profit -- >> so stupid is -- >> stupid, hate -- >> come over to my house. >> shut up. >> you heard the words that get bandied about in my house. >> when your daughter is a published author under the age of 6 -- >> no, no, both of them come out with stuff. stuff like holy shiz, people know what you're saying. or shut the front door.

it's like, we know what you're saying there. or fudge me. you know. if you say fudge me you might as well say it. and it's like stop saying it. they know all these things. >> where did they learn all that stuff? >> i think school. they're 13 years old. >> the internet. >> so here's the thing. >> okay. >> can you do a seven degrees -- six degrees of separation? i can make a case that alabama is not as good as people are saying. alabama, florida played alabama. tough, right? and they got beat -- >> and then -- >> what about george -- did georgia beat -- who beat alabama finally? >> texas a&m. texas a&m with johnny football. >> we saw how good they are against oklahoma. that was like -- but i don't, you know, notre dame has been -- then you had pittsburgh almost beat notre dame. and stanford they had to do the goal line save. i can make the case that alabama is hyped, too, for being better than they are. >> the s.e.c. which is considered the behemoth of conferences has not had a good

bowl performance this year. but the one thing you can say, if you look up and down the roster, notre dame you're right, they won 12 games. they beat everybody they played. alabama, if you go pound for pound, they have like nfl players top to bottom on that. even though they lost a lot last year. people think they're that much better -- >> match up, notre dame's strengths match against alabama's strengths. that's why people are so excited about it. >> well, i think alabama is considered to have a little bit better offense. little better offense. we'll see teo who is an incredible story. if he can hold up against these really big boys. >> i guess money manziel was the right pick, though? you watch the oklahoma game? >> i mentioned him. he is -- >> god is he fast. >> then you think rg3 getting crushed in the nfl because he runs. i don't think that will project to the nfl. he's a nice guy. he got busted for having a fake i.d. early in his college career.

he has this mug shot, but he's a really nice kid. he's humble. he's a great kid. i swear to you. >> -- the program -- >> listen, even in humble division iii you always put an inch and ten pounds on. >> not if you're a woman. don't add ten pounds. >> right. >> you have to do that. how tall are you? >> about 6'1". >> you're about 180? >> probably. >> you'd be 6: 185. >> there. >> and people would be scared of that. >> as they should be. as they should be. >> any update on rg3 this morning? >> no. i mean listen, he's going to have an mri. there's a lot of debate about whether they could have kept him in the game. dr. james andrews said -- >> a lot of tweeting. >> dr. james andrews said he did not necessarily clear him to play. i guess they thought that they couldn't injure hit more and it was in that brace but i find it a little suspect when the coach

says the player said there's a difference between being hurt and being injured and i'm hurt and not injured. >> when he walked off the field, i was hoping for the redskins when he walked off the field i didn't care at that point. when he was down for that long. >> when he got back up -- >> and they were down a touchdown. they needed to come back there. and it was obvious that they were going to be down two touchdowns. >> the quarterback who stepped in for him did okay until the center threw another horrible pass. it was ridiculous. >> but, but, more, you know, it was sort of clear that the redskins weren't going to come back. but once he got up and walked away. it was like, well, that takes -- >> i know you've got to go. if his career is cut short it will be sad. because he's truly a special guy to watch. >> he is. >> it would be too bad. but a knee is a knee. >> do you know what we're talking about here? >> what ended up happening in the first year, what's it going to be like? is he going to last five years getting hit like that? thanks, guys. good to be with you. >> brian shactman thanks for being here. a lot of fun. >> coming up the s&p rallies to

levels not seen since before the financial crisis. so, we've got a team of strategists to ask if the bulls are ready to take the rally to the next level. plus how you can get involved in the action and make money in the process.

stocks starting the year off with a surge. s&p posting its highest close since december of two,000 seven. all three averages having their best weekly gains since december of 2011. we'll tell you what's working now and how you should ride this rally. >> plus electric car owners could be in for a shock. a new tax bill that could send all that money that you're

saving in gas straight to the government. >> and the national championship's on the line. we're going to get a market game plan from notre dame chief investment officer. find out if the fighting irish can bring home bcs glory as the second hour of "squawk box" begins right now. good morning, everybody. welcome back to "squawk box" on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin. we've been watching the futures this morning after that big close on friday. you can see they're giving back a little bit of ground this morning. dow futures down about 41 points. s&p futures off by just over 5. in our headlines on this monday morning, even as stocks come off their best week in over a year, investors are already watching. the next washington battle heat up. senate republican leader mitch mcconnell says that spending cuts need to be part of the discussion if the nation's debt limit is to be raised. president obama says he will not negotiate with the congress over the debt limit. those were remarks that were echoed by house minority leader nancy pelosi yesterday.

also european banking shares are among the leaders overseas this morning. this is coming as a move by regulators to extend a deadline for implementing tougher liquidity requirements takes place. also there are some reports out of china that say the country's sovereign wealth fund is thinking about buying a stake in german automaker daimler. that is according to the people's daily online. the fund is considering a 4% to 10% stake in the maker of mercedes-be mercedes-benz. and daimler shares are among the top gainers in germany this morning. >> the s&p 500 index added 6.6 -- it was 4.6% last week to finish at a five-year high ahead of the beginning of earnings season and alcoa will be out with earnings tomorrow afternoon. thompson reuters look for fourth quarter earnings. barry knapp, head of u.s. equity portfolio strat ji at barclays. what was it again? >> charles. >> good name, barry charles. and richard bernstein, been going through life without a middle name until he started coming on "squawk box." ceo richard bernstein adviser

and cnbc contributor are with us for the next two hours. also jim paulsen of wells capital management chief investment strategist joins us from minneapolis. whenever the market bears out what the latest prediction was, i don't know, he somehow called up and says please let me on while i've been right -- because you were right about last week, paulson, exactly right. >> well, every dog's got to have at least one week. >> yeah, but -- >> well, you know. we haven't really gone anywhere. you have been right. every time the economy has a start and then has a fit you're always saying, maybe we're overplaying the weakness. and once again, it looks like the economy has surprised people by being as resilient, which would have been in what you were saying, right, jim? >> yeah. i think so, joe. i mean, i think underneath all of the other issues we have. and we certainly have a number of them, i think the one that's really caused this market to go on to a five-year high is that underlying momentum not only here in the united states, but

also now globally with china coming back and europe calming down, the united states economy broadening out, including housing, and now getting manufacturing back. i think that momentum, more than anything else, has caused the market to continue to be -- move higher, and to avoid sort of falling back again under all the other crisis, sort of fears that we've had. i think that's the big elephant in the room. if that continues, there's probably more room to the upside. >> do you think -- i know that fundamentals and politics aren't your thing necessarily, but do you think that the fiscal cliff, getting through that, was more important than what's coming up with the debt ceiling? or could the debt ceiling derail your view on things? >> you know, i think we've been desensitizing, you know, all year long a little bit, joe, to some of these armageddon ending stories. last year was interesting. we had as many issues on the

table, a spring swing in the economy. a slowdown landing in china, uncertain election, the fiscal cliff and yet the vix index hardly ever got above 20 during the year. whereas in 2010 and 2011 it spiked up to 45 during those panics where we just had an all-out stock market panic. so, i think every time we get through one of these, we desensitize more to it. i think the market also react less to the debt ceiling than they did to the fiscal cliff. >> okay. >> we get further and further away from the financial crisis and housing improves and the consumer seems a little bit better. unemployment gets a little bit better. people aren't as worried about losing their jobs. all of those things give it a firmer tone. >> i think so. i think that people are kind of starting to settle down in the idea that this thing is sustaining, and every year we've wondered if the recovery is going to end this year. we have a one-year investment horizon. i think we might be starting to lengthen out and say this is going to last over multiple years and that's going to allow

investors, if you can discount multiple years of earnings, it allows you to put a higher valuation on the market. that, to me, is the big key here for the stock market this year. not so much what earnings do. they have to go up, of course. but what is the valuation we place in those earnings and that could go up as confidence goes up. it's not a coincidence that the stock market is at a five-year high the same time that many confidence measures are also at a five-year high. >> what do you think? >> i agree with a lot of what jim said. i think that, you know, look, the 30-year average growth rate in gdp in the united states is 2.7%. the last reported number of 3.1. i bet nobody out there knows the u.s. economy is now growing faster than average. that's why the stock market is up. i mean i think it's that simple. i think we get bogged down in what's going on in washington. and as jim said we take a very short-term view, what's going to happen in the next, you know, three months, two months. and we forget to look at what's actually happening in the economy. the economy is not strong in an absolute sense.

but it continues to improve. that's why the stock market is up. and there's very little to say right now that that's going to change. >> it's going down isn't it, this next quarter? >> it's distracting 2%. >> i'm just saying that point alone, you think about industrial production is now up in like 28 of 32 industries in the united states. things like that. i don't think people -- >> it's well below, though, and the 3.1 was an outlier, wasn't it? >> it was. >> the people that say new normal -- >> look at what you're saying. i give you a good number you come back to me with a negative side of it. my point is that's how people are trained right now. they're trying very hard to find-- >> if the economy sim proving they start to worry the fed unwinding. >> that's normal. that would be a normal cycle. >> jim had a point, our general review with respect to the fed has been that the fed can't really impact equity market valuation. in fact, valuation on cyclical sectors has gotten cheaper since qe-2 was announced. but he mentioned the vix. now, in 2010, the fed started

shrinking their balance schott so they were actually tightening. in two thud eleven they went on hold for a period of time. in 2012 they never stopped. they just kept in with operation twist and then rolled it right into qe forever. so the amount of liquidity they pumped into the market has dampened volatility. no doubt about it. we didn't get correlation to go 80%. we didn't get the vix to go above 20. so that did dampen some of that volatility and that helped the capital markets environment. but they can't do this forever. the history of the fed monetizing federal government debt is a really storied one so when they pull out, you know, and you even get a whiff of it like we did on thursday. that becomes problematic for that whole volatility -- >> but it has to happen at some point. >> but i think the important thing is you remember in every cycle there comes a point where the fed starts to tighten. that's not usually the end of the bull market. the end of the bull market is when the fed tightens too much. i would say we're years away from that right now. just the fact that the fed might

consider tightening. >> that's a cap on this year, for sure. because we get to the back half of the year. things go well, jim's right, the economy proves resilient, they start tapering the purchases. in '83 it was the first rate hike. and i absolutely agree with your point, that getting past the fed normalization process is when the best equity market returns 95, you know, '06, '07, that's a better period. but we're going to have to get through that. >> i agree. i think -- i make a distinction. i think the policy is going to take over the investment consciousness here by the end of this year. i think it's going to fade away, it's all going to be about monetary issues. but i make a point about this cycle with monetary issues. we've got to go first from crisis monetary policies, back to normal monetary policies. the fed can make a case that they should be accommodative right now. but can they really make a case when we've grown 2.6% in the last year, when the unemployment rate's dropped by a percent, when housing productivity is

rising, when home prices are rising, job creation is rising regularly. they need to have crisis-like policies employed yet? zero interest rates, balance sheet expansions with alternative to treasury asset purchases and guaranteed rate loans? that's the stuff you do in the middle of a depressionary crisis. not in the middle of a third year recovery. and my point to barry ate point is moving policy from crisis to normal, i don't think, is going to be that big of a deal for the markets. it's not like we're going from normal to tightening. so first we got to get back to normal. and then maybe we can talk about the worrying about if that's going to impact the stock market. >> right. i don't disagree with barry's thesis that this is a sugar high from the fed. this is a fundamentally driven advance in the stock market by growth in the economy. >> right. but jim, don't you think that if we do get more fiscal austerity over the next year, 24, 36 months or something like that, that the fed will -- may try to counteract that by being easier than they would normally be later in the cycle?

that's possible, rich. to me i'm a little worried about that because i think we're risking reinflating at some point by the tremendous overexpansive monetary form. and the problem is, not like the burns days or the volcker days of the '80s when volcker just had to reel in his monetary policy, we've got a global overexpansion of monetary policy. around the globe. and we can tighten here, but if they're not tightening in japan, in europe, in china, it might not make a lot of difference. so i -- i agree that they're kind of going to be slow in tightening. but i don't know if that's going to be such a good thing down the road for the markets overall. >> yeah, i know. by the way, my point was not that we're up on a sugar high. in fact the fed policy has not helped the growth parts of the market and we can't actually get to that next expansion of multiples, next bull market until the fed starts to normalize. >> okay. you guys are sticking around?

don't go anywhere. we're going to say good-bye to jim. thank you for that. and you've got comments or questions about anything you see here on "squawk," shoot us an e-mail, squawk@cnbc. you can also follow us on twitter @squawkcnbc. next why a high yielding energy company at the top of scott black's list. we'll speak to the stock picker about that mysterious name and others in our what's working right now segment coming up after the break. i don't spend money on gasoline. i am probably going to the gas station about once a month. last time i was at a gas station was about...i would say... two months ago. i very rarely put gas in my chevy volt. i go to the gas station such a small amount that i forget how to put gas in my car. [ male announcer ] and it's not just these owners giving the volt high praise. volt received the j.d. power and associates appeal award two years in a row. ♪

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welcome back, everybody. take a look at the futures. dow futures down by about 35 points this morning. s&p futures off by less than five points. this is coming after the market closed, the s&p 2, at least, at the highest levels since 2007. back on friday. so a big week last week. also in some of our headlines this morning, reuters says that disney is considering layoffs as it looks for ways to cut costs. sources say that the company is looking at redundant operations after a string of acquisitions. including its interactive unit which creates online games. staff cuts are not certain at this point. the company has a history of streamlining operations through layoffs, instead. a shell oil drilling ship that ran aground near a remote alaska island has now been refloated. it's royal dutch shell's operation. it was floated from the rocks late last night. teams were assessing its

condition and once they're satisfied that it's sea worthy it's going to be towed 30 miles to shelter in the kodiak islands. the oil drilling vessel, which has no engines of its own, was being towed for maintenance when it ran aground during a powerful storm on new year's eve. >> he is a part of the bar ron's roundtable and one of the most respected stock pickers on the street. what is he telling clients to do with their money? joining us from boston is scott black, president of delphi management. great to see you. it's been awhile. >> thank you very much, becky. happy new year. >> happy new year to you. i know you're not much of a macro guy. you tend to look at stocks specifically. when you see what's been happening where the markets abeen headed over the last several weeks or so, what does that give you a sense about overall? are you optimistic about things or pessimistic? >> i'm a little bit pessimistic. i think stocks are reasonable at 14.1 times this year's expected earnings. but the problem is we're still going to have the debacle over the debt ceiling. if we have a replay of what just happened with the tax fiscal

cliff, i think it's going to be deleterious to the market. there's just too much uncertainty. and in truth, i think the president must lead this time instead of congress and articulate exactly where he thinks the cuts or the cutback in growth and the entitlements should be. because the $620 billion that was raised in taxes is a drop in the bucket against the $4 trillion which simpson and bowles recommended a couple years ago. >> mm-hmm. if you get some sort of a solution, an 11th hour solution, where we were only over the cliff for a day or two, does that lead to a relief rally once again, whatever the solution is? >> i think if you had a resolution to the uncertainty, there's a huge pentup demand. and if you had something that was along the path of the trillion dollars in revenue hikes and $3 trillion in cuts, which was what simpson-bowles predicted i think the market could explode to theion side. but i'm not hopeful that we're going to get ride of the dysfunction in washington. >> i hear you. and it seems like every deal they come up with is more of a situation where they're kicking the can down the road and not

actually dealing with anything. but even that, the idea that they managed to come together, and come to some sort of a resolution, that did get some relief into the reality. maybe you don't explode as much in the market but would you see some sort of a relief rally even yet? >> i do agree with you. i think some of the s&p 500 estimates are overblown. reminiscent of last year. if you look on a bottom-up basis, it's over $112 is the prediction for 2013. it was about $110 or $111 for last year and we came in at $98 and change. if you think that nominal growth in gdp is somewhere in the ball park of 4%, i don't see corporate earnings growing much more than 5% or 6%. you have the headwinds of europe still above currency and the business and operating margins peaked at 9.5% in the third quarter of 2011. they dropped almost 50 basis points, roughly at 9.01%. so it doesn't bode well for a big push from corporate earnings in 2013. >> which is why you think you'd

rather be a stock picker in this market to find some things. a couple of the stocks you like. first up lynn energy. >> yes it's an llc. basically a domestic striler. they're in the -- well diversified. 55% of the reserves are gas. and 45% are liquids. the stock has pulled back here to $36 a share. we figure the breakup value conservatively is between 40 and 45 and you're getting paid while you eight. you get an 8% dividend yield and this drill big growth internally of 5% to 6% and the nice thing is, even if people are worried about natural gas, their hedge for this year over $5 per mcf and $95 a barrel of oil 100% of their production. >> hmm. what about titan international? that's a construction company? you also like? >> it's not really construction. it served the construction and ad markets. they produce the big wheels, the rims, the undercarriages, their

biggest customer is deere but they supply people like cat and cub owed today. they made acquisitioacquisition. they'll earn 265 to 270. it's a $20 stock selling just under eight times expected earnings. the return on equity is excellent, 24%, return on total capital is 18% and they're well positioned. if you're ray believer in the ad cycle as i am because we also known deere this is a surrogate play at a lot cheaper multiple. >> titan also supplies caterpillar. do you like caterpillar? >> they absolutely do. but roughly 60% of the business is oriented towards ag and construction and infrastructure is roughly 28% 30% the other is sort of resid you'll 10% all other categories. so as i said you get a nice surrogate play if you believe this growth in deere and cat and it's a very low multiple selling at roughly 55, 56 cents on the s&p 500 multiple. the balance sheet's relatively clean. they generate internal cash.

and i think this is an interesting play that most people never heard of. >> yeah. okay. you know, scott we want to thank you for bringing these to our attention and thank you for joining us. you'll have to come back again soon. >> thank you. and have a nice year, becky. >> okay, you too. >> coming up the s&p is coming off its best close in five years. we're going to tell you where you should be putting your money to work next. and then the next fiscal fight is already taking shape. we're going to take a closer look at the debt ceiling battle with former pennsylvania governor ed rendell. that's at the bottom of the hour.

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welcome back, everybody. it looks like microsoft has won the holiday sales war for game consoles. microsoft sold more than 750,000 xbox 360 consoles in the black friday week back in november. that beats sales of both sony's playstation 3 and nintendo's wiiu. also, former new mexico governor bill richardson and google executive chairman eric schmidt have traveled to north korea on a controversial trip. schmidt is the highest profile u.s. business executive to visit the communist nation since kim jack un took power a year ago. he says the congregation intends to ask about kenneth bay.

amazon.com was upgraded from overweight to equal weight from morgan stanley. the firm notes potential international opportunities that the company has and increased its price target to $325 a share. >> okay. if you've got comments, questions about anything you see on "squawk," shoot us an e-mail. you can also follow us on twitter @squawkcnbc is the handle. take a look at futures right now. red arrows across the board as we flip the screen there. dow jones looks like it will be off about 35 points. s&p 500 off close to five points and the nasdaq off about 8.5 points. the battle for the national championship between notre dame and alabama tonight. notre dame's cio scott malpass is going to join us with his investing game plan. with the spark cash card from capital one, sven gets great rewards for his small business! how does this thing work? oh, i like it! [ garth ] sven's small business earns 2% cash back on every purchase, every day! woo-hoo!!! so that's ten security gators, right?

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live shot of times square. welcome back to "squawk." in the headlines, president obama starting the process of filling jobs for his second administration. he's going to be nominating

former republican senator chuck hagel for defense secretary coming this afternoon at an event in washington. he's also going to be topping john brennan as the next cia director. also in the news this morning, flowers, foods and mexico's groupo bimbo are among those vying for hostess brands. that's according to reuters. i said bimbo. is it bimbo? it's not bimbo. anyway, those brands, including wonder bread, baker's pride and butternut. the bankrupt company liquidating and the bread brands could bring in more than $350 million. of course we all want twinkies so that could be a good thing. finally a key hurdle has been cleared as american airlines and us airways finally explore a emergencier. us airways pilots have backed a proposal by american's pilots union. and those details about the two groups would be combined in the event a deal was struck, a bankrupt american is expected to consider the merger proposal at a board meeting this week. so we might have a deal finally. or at least we're getting

closer. we've been talking about that one for a very long time. becky, back to you. >> andrew, thank you. why don't we take a look at where the futures stand this morning. we have a couple of guest hosts here who have been analyzing what's been happening with the markets and what to expect. this morning you do see a little bit of a pullback. and gentlemen, rich, barry, we've been watching these things. if you had to give a forecast for the year, obviously a lot of different moving things, where are you going to come down? barry i know that you did -- >> i do have to do this. >> don't talk about how you get out of it now. >> we have 15/25 as a year end target which for us was a 10% return when we made the forecast. which is above the long-term mean and was a relatively optimistic forecast. i still think the first half of the year is going to be difficult, notwithstanding the rally that we've had. the discussion so far has been about getting these deals as if once the deal is done, the effect effects we just move on from them and forget about them. the only time we've done any kind of austerity in europe, which has been prenom dantley

tax hikes, the multiplier on that has been bigger than the government or economist has estimated. and there's been real fallout from it. we haven't seen any of the fallout yet from the tax hikes. >> guys, we do have some breaking news we want to bring to your attention. this is breaking news coming from bank of america. the bank is announcing a settlement with fannie mae over mortgage repurchases. that settlement is worth $10 billion. $6.7 billion of that is buying loans held on fannie mae's books. $3.6 billion is to cover past losses. the bank has already reserved for part of that amount the actual pick of the fourth quarter income is expected to be $2.47 billion. also bank of america says it is selling $300 billion worth of mortgage servicing rights. the bank is saying it will still report a modest fourth quarter profit. separately bank of america is also giving some information about a $10 billion mortgage foreclosure settlement expected to be announced later this week. its portion amounts to about $1

billion. and barry when you see a situation like this, where the bank is talking about these things, particularly with the sales in terms of the mortgage servicing, is that a good news or a bad news situation? >> i think on balance it's probably good news for bank of america. the mortgage servicing rights, after they took over countrywide was so big it was probably unhedgeable. so, winding that down to an extent is probably a good thing. they get capital in. they'll lose some stream of earnings from it. but the bigger issue with them has been shrinking their balance sheet, which they were doing until about three months or so ago, and then this ongoing issue of reps and warranties the mortgage put-back. so putting that behind them is a positive, there's still some big unanswered questions in the mortgage market. what are your capital requirements, what are the qrm rules, the risk retention, how much do you have to keep on balance sheet? that's still unsettled. and a safe harbor qrm rules are unsettled as well. does dimarco keep his job? what's the path for fannie and

fredd freddie? mortgage credit is still incredibly cite. the average fico score for a fannie and freddie loan is about 750. the average loan to value ratio is below 70. getting these things behind -- >> is $10 billion the right number? a high number, a low number? >> more than they reserved for, so obviously it's a pretty big number. >> that doesn't bother you? >> most people thought the reserves are -- i'm underweight the financials. >> i think you have to remember when you have a great above all, where does that really appear? you build excess capacity in bank balance sheets. we're going to see wave after wave after wave continue of shrinking of bank balance seats globally and i think this is the next step. i personally would argue every time they shrink their balance sheets and start going back to traditional lending, maybe they'll do that. maybe they won't. i don't know. but if they do that, that's quite bullish. if they shrink their balance sheets and decide they still want to do commodity swaps in botswana, we're still going to have trouble.

if they can shrink their balance sheets, they're very vulnerable. >> the question is how does that process go? we've been discussing basel iii this morning and this isn't about capital this basel iii decision. this is about, to me, the real issue is being forced to hold government securities on balance sheet. financial repression. in the 40s and 50s, 80% of bank balance sheets were in government securities. it took 30 years to wind that down to 20% which is government spending share of gdp. the banks were horrible relative performers throughout the entire -- >> that stuff is not as safe as everybody thought. you look at the sovereign dealt and you think, okay, this is going to be good stuff to hold. >> clearly an issue. rut also, look, that's not good for the credit capacity of the overall economy. i mean we have household debt to gdp of 25% after world war ii so we got away with it. so this could be negative for the economy, negative for the banks. how this whole new leveraging process goes is a big issue. for me i'd love big banks to do

well, i work at one. i still see this as a big struggle around the regulatory deleveraging. >> the question is, we're going to shrink credit capacity. does that go into the real economy or the financial economy? right. much of the credit bubble was just credit going to the financial -- >> does this help or not? >> longer-term i think it's great. >> longer-term i think it's great. >> the real question is what's the path of fannie and freddie? what happens, who gets named the new head of the hfha. can we get qrp and all these things sorted out? dodd-frank is now 9,000 pages with 30% of the rules. glass steagall was 37 pages or something? it's incredibly complex. a lot of these issues are unsettled. it's an ongoing issue. >> fortunately you two are with us for the rest of the morning. in the meantime we've got frank standing by joining us from san antonio this morning. frank, of course, is the ceo and cio of u.s. global investors and frank, good morning to you.

>> good morning, becky. >> let's talk a little bit about gold. there are a lot of people trying to figure out if gold is going to be a safe haven in 2013 or if changes from the fed will actually turn things around? we saw a little bit of a square last week. what's your opinion? >> well, let's just wait until it actually happens. gold was up again last year, modestly. gold stocks underperformed and as we've always advocated becky, that it's just prudent to have 5% to 10% weighted in gold and gold stocks and rebalance each year. what you're seeing from the governments is this comes out but still they will maintain negative real interest rates and the monetary base will expand. as long as those two factors are driving it, then the price of gold will rise to higher levels. >> what did you think about what the fed minutes revealed last week? the idea that several fed members at this point think that maybe by the end of this year, they can start to unwind some of the qe? or get rid of it? >> maybe that's a big far out maybe. so i would bet on still owning a

smaller -- >> do you think it's over 2,000 this year, frank? >> i think it's a high probability. if you look at mathematical models, gold is oversold. and any time it's oversold by 15% over 12 rolling months we usually get a rally. >> what were you saying at the beginning of 2012? everybody said it was going over 2,000. it never got close. it closed at 1600. you know, it's moved up from $200 an ounce, made huge gains over a ten-year period. everybody said it was going to go above $2,000. the fed was full bore last year. the fed, and central banks around the world were full bore. it was down to $1600. did you say it was going over $2,000 in january of 2012? i said it would test the $1900 levels. but last time there was a debt ceiling battle and i think it has a high probability of doing it again. i think it's really important, there's two demand equations.

one is the fear trade. but the other is the love trade. in february of last year, there was a tax on gold imports and that did have an impact because of demand for gold going into india dropped by 30%. i think later in the year they changed that so i think you're going to see emerging markets rising and that's bullish for the love trade in gold. all right so again you would say how much for did you say 5% to 10%? >> it's just prudent to have 5% waiting in bouillon and 5 frs in gold stocks. great companies like franklin pay out monthly dividends which are higher than a one-year government note. huge balance sheets, 70% profit margins. companies like that are important to have in a portfolio. >> that might work. so you get paid, because no dividend with gold. what's the dividend? >> dividend is around 1%. and it's been rising.

amongment owns just under 5% of the company. it's a wonderful company. much better than five year treasuries. >> frank, it's good talking to you. hope you'll come visit us on set next time you're in new york. >> thank you. >> thanks, holmes. >> waiting for you. >> republicans and democrats have been ramping up the rhetoric on the debt ceiling over the weekend. governor rendell, former pennsylvania governor and cnbc contributor joins us now with more. good morning. >> good morning, guys. >> i want to read you what mitch mcconnell had to say over the weekend. he said the tax issue is over. he said we resolved that a few days ago. now it's time to pivot the single biggest threat to our country both in the short-term and the long-term, we now have a debt of $16.4 trillion. your sense, are we -- is taxes on the table now? are they off? you heard what pelosi said, we need to find more revenue. she's talking about it in the context of taxes of some sort. >> well, if we take a deep

breath and get aside -- put aside the political posturing, campaign to fix the debt believes we need to do about another $1.7 trillion in spending cuts, and obviously that means entitlement. and secondly, we've got to do about another $600 billion in revenue. and we can do that through tax reform, we can actually lower some rates. eliminate some loopholes, do things that should have been done a long time ago and we'llly produce oaf knew without a major hit to average americans. >> do you think that your democratic friends are ready and prepared 20 do that? >> oh, absolutely. look, i think if we're serious, and i haven't seen anybody in washington really serious about solving the debt problem yet, but if we get serious about solving the debt problem, again, we need to do spending cuts, and we need to do increased revenue. and in this next round it's about three times as much spending cuts as it is revenue. >> but so far, many members of your party have been unwilling to really get at some of these

cut issues and you're talking about a $1.7 trillion. >> right. and it's interesting, and my party's to blame, no question about that, guys. but, have you heard any spending cuts detailed by the republicans? no, they keep saying let the president put the spending cuts on the table. >> we had bob corker on the show last week, as -- >> well, bob -- there are a few out there. there are a few out there. there's no question. but, look, everyone's got to do this together. and 9 only way they're going to do this is to hold hands, and say, these are difficult cuts, but we've got to do them, and we've got to do them together. and the pain has to be shared across the board. and you can do this. we intend to campaign to fix the debt to come out with a clear table of options which will allow us to achieve the $1.7 trillion in cuts and the $600 billion in revenue increases through tax reform. it can be done. but we've got to do it. and i think the president's got

to lead. look the president's the one elected official in washington who doesn't have to worry about running for re-election again. he is the executive. he's got to lead. he's got to start putting some of the things on the table and he's got to say to the republicans, okay, what are you interested in? interestingly, when the president talked about chain cpi, it was the republicans who sort of backed off of chain cpi. they got some flak, and they sort of backed off. so, we need people on both sides of the aisle to be willing to accept flak. we're not going to get this done without taking a lot of grief from a lot of different interest groups. >> governor rendell, i was actually going to ask you a question that probably would lead to what you just said. but there's a perception or a belief out there that we need divided government to get this sort of thing done, right? reagan-o'neill, clinton-gingrich, that's the last two times we did entitlement reform. that argument seems to be wearing kind of thin right now given that we've had divided

gft. we're not going anywhere. what's your perspective on that? i think it's about leadership. but -- >> well, it is about leadership. and it's time for the president, look, if you were making the case for the president, if he were here himself, he'd say well i wanted to do the big deal with john boehner, and that was almost $5 trillion. and the republicans backed away from it. but it was vague. it wasn't specific. it wasn't detailed. you know, so i think the time has come to get down to specifics. >> and ed i saw -- and then i thought we -- i remember mcconnell, he took the ball, and then he was talking to reid and the chain cpi came back on the table and reid said absolutely not. i've got to watch you like a hawk. now when did the republicans back away from chain -- i didn't see? when did that happen? >> oh, no there were many pronouncements by the republicans saying they were willing to take chain cpi off the table. >> oh, they're willing to take it off because it was a nonstarter with the democrats. they themselves didn't want to -- they still want it. and you're on fix the debt.

you know lamar alexander and corker. >> sure. >> they're putting specifics on what they want to do with the biggest nut that we have is medicare. why do you say they're not specifying? i got to watch you like a hawk. >> no. the republican leadership, mitch mcconnell had plenty of opportunity on the shows this weekend to specify, and he said, we're waiting for the president. and look, again, put all this stuff in the trashing. we've got to sit down and do this like mature individuals who act like we care about the long-term benefit of the country. and it's got to happen. and i agree that the ball is in the president's court. he has to show some affirmative leadership. >> all right. who is going to win the super bowl? >> it's easier to say that my heart's with notre dame. alabama is going to win. >> oh, tonight? for that. oh, yeah, okay. >> my heart's with notre dame. >> you never know, though. and then who's going to get in the super bowl you think, since the eagles aren't?

>> patriots/packers. >> patriots/packers. >> i've got to give him -- >> governor, thank you for joining us this morning. >> thanks, guys. >> coming up a game plan for investing. notre dame's chief investment officer joins us with his views on the market and how he's making money now. we might be able to ask him about the game tonight. i don't know. and the futures are indicated down about 33 points. "squawk box" coming right back. still to come, the former chairman and ceo of wells fargo, on the state of financials and the looming debt ceiling dilemma. our interview is coming up. ♪ [ male announcer ] how do you make 70,000 trades a second... ♪ reach one customer at a time? ♪ or help doctors turn billions of bytes of shared information... ♪ into a fifth anniversary of remission?

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gentlemen, and for you seniors, it's your last months so make it count because you'll remember it for the rest of your lives. let's get 'em! ♪ >> whoo. >> that's sam. >> it's rudy. rudy, rudy. >> notre dame's fighting irish will be taking on alabama's

crimson tide tonight in the national college championship game in miami. scott malpass is the chief investment officer of notre dame. we usually start off talking about the markets with you. but we have to start off talking about this game tonight. what's it mean for notre dame to be back in a championship game? >> well, thank you, and good morning. i'm in miami and we are focused on the game. by the way, entire notre dame community is here and your friends, jay george, rim roher and jimmy dunn said to say hello to you. this game is a culmination of a lot of work by our school, by our coaches and players, institutionally it gives us a public platform for the broader nation to hear more about the university, our academic excellence, our students, our service learning, all of the things we try to do. so it's been a fabulous season, a lot of fun. >> there was a great article over the weekend, it was an interview that was done by steven war with lou holtz, taking a look at what it's meant

for the institution, but how the pool is always open because notre dame is a national team that can draw from schools all across the country whp when you get numbers like this, i had seen recent numbers saying the number of fans among youngsters had dropped significantly because it had been so long since you were there in a national championship. when you see something like this, you guys were back in, back front and center for everybody out there, what would that mean in terms of admissions and what happens from the university? what do you get from the endowment? >> well, admissions are up. and they've been up every year the last several years. some of that would be due to football success. early applications were up 10% by the middle of the season already. so there's definitely some moves there. certainly the number of donors will increase with success in sports. there's never been a correlation between major giving and sports. but you know, it's a very public front porch and you'll get folks unassociated with the university who want to become more

involved. certainly there's a great impact there. long-term obviously the commercial contracts for broadcast rights and those sorts of things will be more attractive with success on the field. but, really, the biggest thing is that it was a chance to showcase the university, and its values and our mission and the kind of things we're trying to do here and we're just very pleased and proud of our coaches and players for giving this school that opportunity. >> well, scott, we just heard from ed rendell who said that this heart is with notre dame tonight. ours is, too. we are rooting for you guys. why don't we talk about the markets. we have seen some massive action, in fact the market for the s&p on friday closing at the highest level since 2007. do you still see bargains here? >> well, you know, the market has had an incredible run over the last few years. you know, the p/e ratio and broader u.s. market is still attractive at around 14, 15 times. certainly not cheap. but we have quality managers. you know, the thing i tell my team is we need to maintain balance. there's so much uncertainty.

we want quality managers, who are buying quality assets. we want to stay diversified. we want to have good liquidity so we can take advantage of opportunities, as they emerge in the coming months. there's certainly opportunities asset class. but nothing looks, you know, extraordinarily cheap right now. and we're seeing cash positions, and some of our hedge funds, for example, at higher levels than you would have found, you know, three, four years ago. >> where are the best opportunities? >> well, when there's change in a industry, there's always opportunity. so i still think there's a lot of opportunity in financials because there's going to be more consolidation there. certainly with the regulatory changes in health care, and the changes there, there's certainly going to be opportunities. we continue to maintain a pretty high weighting in the energy sector. we've talked about that before both in the private side, midstream, upstream, downstream, so we'll continue with that. but those will be sectors, i'd say technology in addition, there's so much change going on in the world, and how people do

business, and communicate, so there's going to be opportunity in technology. we have a large venture capital principle yo as you know. that's been very lucrative. we'll continue to do the things we've been doing. keep it simple. i think people want to try to tinker too much. we're a long-term investor. we're not going to market time. i'm on the vanguard board and we have 25 million shareholders who are always worried about the market. and there's a tendency to what to tinker in the market and change all the time. we're always trying to educate people that probably isn't the best approach. >> scott, this is rich bernstein. you just mentioned you were on the vanguard board. and obviously one of vanguard's big issues is management fees and trying to telling people you shouldn't pay high fees to managers. endowments in general have been still rushing towards alternative investments. where management fees were extraordinarily high. i was wondering if there was an inconsistency there in your dealing with vanguard and maybe what endowments are doing with manager fees? >> no. no. the large endowments have full

teams of very talented people who can go out and talk to, you know, investment firms. we interviewed 400 or 500 firms a year. so we have the expertise and the team to do that. we can get access to the very best alternative managers that like having the long-term patient capital. the typical retail investor, of course, is not going to be able to do that. and you would not want them to get in to sort of second-tier funds in the alternative area because they are just going to pay a lot of fees and not going to do very well. so we're looking for net fees and we are an attractive, real returns. you know, in second es of 5% or 6%. and we have the team to go out and find those kind of people to do that for us. >> scott, thank you very much for joining us. and we want to wish you the best of luck tonight. we're going to be watching. >> thank you very much. go irish. >> that's right. go irish. when we come back, a new tax that could shock some car owners. details are just ahead. also at the top of the hour, dick kovacevich will join us.

coming up in the next hour, former wells fargo chairman and cho richard kovacevich is going to join us to talkebtceiling, the markets and much more. take a look at futures this morning. red arrows across the board. "squawk" is coming right back. [ male announcer ] how can power consumption in china,

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nothing. are you stealing our daughter's school supplies and taking them to work? no, i was just looking for my stapler and my... this thing. i save money by using fedex ground and buy my own supplies. that's a great idea. i'm going to go... we got clients in today.

[ male announcer ] save on ground shipping at fedex office. stocks starting off the new year with a bang. the s&p closing at its highest level since 2007. we will bring you picks for your portfolio and the events most likely to move the markets this week. >> a veteran of the banking industry sounds off on america's

debt crisis. >> you can't not pay bills that we've already incurred. >> former wells fargo chairman and ceo dick kovacevich on the budget battles ahead. >> and the consumer electronics show set to kick off in vegas. we're going to bring you the latest buzz about this years ahot new gadgets, plus tech stock picks for the new year. the third hour of "squawk box" starts right now. >> welcome back to "squawk box" here on cnbc. first in business worldwide. i'm joe kernen along with becky quick and andrew ross sorkin. our guest hosts this morning, richard bernstein, ceo of richard bernstein advisers. and a cnbc contributor. and the world is full of richard bernstein's. there's probably literally thousands. and your parents gave us no help in trying to distinguish -- >> john smith without a middle name. >> you have no middle name.

how many richard bernsteins are there in the world? >> not in the world. but in the new york area there's quite a few. >> and you have no -- so we don't even know if you're the person we wanted today. you do stock market stuff, right? >> you guys took my fingerprints just to make sure. >> and barry charles knapp, barclays head of u.s. equity portfolio strategy. more from them in just a minute. first, though, morning headlines. including some stuff about bank of america. >> the big one just came across the tape about a half hour ago. bank of america announcing a setment with fannie mae over mortgage repurchases. it's going to be buying back $10 billion in loans from fannie mae. a number represents a premium to the value of those loans. the bank has already reserved for part of that amount the actual hit to fourth quarter income will be $2.7 billion. also bank of america is selling $300 billion worth of mortgage servicing rights to unnamed parties, even with all these new developments, the bank says it will still report a modest fourth quarter profit. separately b of a is also giving information about a $10 billion

mortgage foreclosure settlement that's expected to be announced later this week. that's industrywide. the bank says its portion of that settlement amounts to about $1 billion. the other big banking news of the morning. european bank stocks have been rallying all day in part because of news from global regulators over the weekend. the basel committee is giving banks four more years and much greater flexibility to build up cash buffers. banks had complained they could not meet the january 2015 deadlines to comply with new global rules on minimum holdings of easily salable assets and sun ply credit to businesses and consumers. finally, in other d.c. news today, two controversial nominations expected from the president. the president is expected to nominate former republican senator chuck hagel as defense secretary. and also counterterrorism adviser josh brennan as cia director. hagel had criticized the iraq troop surge, opposed unilateral sanctions against iran and referred to pro-israel groups as the jewish lobby.

once said being gay inhibits effectively. brennan is a 25-year cia veteran. he withdrew from the agency's top job in 2008 amidst allegations of enhanced interrogation techniques. i just saw "zero dark thirty." >> you want to just call it torture? >> some of that stuff looked tough. quick check on the markets. u.s. equity futures at this hour. dow off 34 points, s&p 500 a little over 5 and the nasdaq off close to 10. overseas in asia, a mixed bag. the hang seng down virtually nothing. shanghai composite up a little bit and nikkei off a little bit, as well. finally, quick check on europe, we do have red arrows across the board there. the fed's minutes last week threw a little cold water on the markets. not much considering where the s&p ended up. here is a look at the inside divisions. the division that's inside the fed and the outlook for qe from

senior economics reporter steve liesman who joins us a little background. you going to give us a little drama, a little -- >> yeah, there seem to be at least two separate fault lines, andrew, at the fed over how much quantitative easing to do this year. the first one is the easy one. that's over the economic outlook. some officials see the economy meeting that test of substantial improvement in the labor market earlier than others do. that's the easy one. the more complicated split is among those who may or may not see the economy improving, but they're worried about growth in the balance sheet. i want to give you, from the minutes, the divisions at the fed. a few members of the fed say asset purchases are warranted until the end of 2013. a few others, we need considerable policy accommodation but give no specific time frame or total. they're probably the ones who are more oriented towards substantial improvement in the labor market. it's this last group that seems to be the new group. others, several others, they say it's appropriate to slow or to stop purchases well before the end of 2013, citing concerns

about financial stability, or the size of the balance sheet. looking at those specific concerns, the fed's balance sheet could be forced to sell securities at a loss if they raised rates, and the price of the security would decline. they could be forced, if they made -- if they raise the interest rate on reserve to make large payments to banks in order to keep those reserves at bay from becoming loans. and this ultimately would all reduce payments to the treasury. the fed has been sending about $70 billion or $80 billion a year to the treasury. those who are not concerned about the balance sheet, they worry the fed could be forcing them to make decisions on qe based on essentially noneconomic reason. in other words, not tied to improvement in the labor force. they point out big fed balance sheets have not caused inflation. the mon tarrists for four or five years have been entirely wrong about this process. they further point out that the fed can reduce the balance sheet to a natural runoff, in other words it could run with a large

balance sheet, if it doesn't cause inflation. and ultimately what they would do is they would quarantine the reserves with interest on reserves. here's what the fed will go on with qe at least for the first half with this upcoming meeting end of january at the end of this month and comments between now and then are going to be critical at setting market expectations. already the fear is the debate is taking away from the value of this new forward guidance, which is supposed to focus market attention on the economy, and the labor market, not the size of the balance sheet, or the calendar. guys, one of the things that i'm hearing is that the fed has to be, you know, really careful not to change these market expectations, which are out there. because that's one of the benefits of the whole process. is going to be -- when i talked to jim bullard on friday, i asked him where was he in this process? mid 2013 or late 2013, and he expressed some frustration in that very question. saying, why are we talking about cal czar dates and not the new policy at the fed, which is substantial improvement in the labor market. >> but is that some members'

frustration with the idea that we've already tied it to the unemployment rate, they're going to say look, we don't agree kind of along the lines we're worried about where things are headed? i mean it sounds to me like toy are starting to see some real pushback. >> right. it's along two separate lines. there's the normal economic division. you can see that by looking at the fed's economic projections. you can see where how many members are where they are for 2013, nobody really is looking for much more than a 7% unemployment rate. this year, which i guess under that -- if those forecasts end up being correct, the fed would go on and do qe-2 the whole year. how much is a different question. >> they wouldn't taper the purchases toward the end of the year? >> they could taper it, that's one response. the issue becomes, barry, setting expectations. right? you've got to set expectations for how long. and how much. and this balance sheet issue is is something that is a bit of a side track from the issue of will the labor market improve or not. >> look. i think there's a punch of

issues here. one is they've been maintaining and slowly changing their expectations that naru, the level of unemployment that generates inflation is something like 5 and 5.5. we thank youly think it's 7. our economists came back, he's had a good call on the trap in the unemployment rate. if we're at 7 by the end of the year and that is naru, core cpi is 2.5, 3, they need to be tapering. >> what was the sort of consensus view out in san diego in sterms of what the economy is going to look like the rest of this year? >> slow growth. >> you were -- >> slow growth. 2% growth. 2.5%. not much optimist that things will pick up too much. a lot of talk about the uncertainty. also a lot of talk about the big change in economics right now is what to think about the balance sheet, and the federal reserves, right? because friedman told us that big balance sheets should lead to inflation. and i asked a bunch of eminent economists if friedman is now

believed to be wrong. and they also said yes. >> hmm. >> so there's a tectonic shift in economic thinking about inflation. >> we'll talk about that -- >> thank you. >> never a good time. >> joe? >> okay, coming up, a veteran of the banking industry tackles our nation's debt problems. former wells fargo chairman and ceo dick kovacevich will join us next. plus head to vegas for the consumer electronics show this week. stock picks and the latest buzz from sin city. thor gets great rewards for his small business! your boa! [ garth ] thor's small business earns double miles on every purchase, every day! ahh, the new fabrics. put it on my spark card. ow. [ garth ] why settle for less? the spiked heels are working. wait! [ garth ] great businesses deserve great rewards. [ male announcer ] the spark business card from capital one. choose unlimited rewards with double miles or 2% cash back on every purchase, every day! what's in your wallet? [ cheers and applause ]

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welcome back, everyone. with the debt ceiling showdown looming the full faith and credit of uncle sam is on the line. joining us is dick kovacevich, former chairman and ceo of wells fargo. dick, it's great to have you here today. before we talk about the debt ceiling i'd like to ask you about a story that is leading the financial newspapers this morning and that is what's happening with basel. the f.t. is calling this massive softening of the basel rules. i'm wonder in your opinion is that a good thing or a bad thing? >> i think it's a good thing. they were trying to do too much on the liquidity front. certainly liquidity very, very important. and it needs to be fixed, or sure to be fixed. but i think the way they're

heading today is a mossive for the whole world economy and for banks' ability to lend, and to be there for their customers. >> the other big question is sovereign debt. that was something that they had the whole sovereign debt or the top grade corporate bonds out there. that's been loosened a little and other securities held, as well. i imagine you think that's a good thing, too? >> i do. >> all right. why don't we talk about the fiscal cliff, and -- or i should say the debt ceiling once we got through the fiscal cliff. this is the next big issue that's roiling washington. how big of an impact does that have on the business community? >> i think it's huge. i think it's more important than the fiscal cliff. i think it would have been better that we went over the cliff than if we do not pay our debts. and i just shocked, dismayed, stunned that we did not have a grand bargain that included the debt ceiling increase. and i think it's a big failure of this process. and it sounds like they both sides now are digging in and

we're going to get to a more serious crisis relative to the debt ceiling than the fiscal cliff was. >> yeah, you could talk about who won the last battle, who won, who lost, where things stand, but this is a real issue, and i think there are a lot of people who may not understand. if we don't deal with the debt ceiling, i mean, this is a situation where america's borrowing costs could rise for decades 20 come, correct? >> yes. and it just -- it makes us look foolish. and amateurish. and i can't see how anyone could be confident in our country, and most particularly in our political leaders, if we default on our debt. and we won't default. don't get me wrong. i mean, but even if it's delayed by a week or two weeks, it just -- it just looks like we are dysfunctional, which we are. >> but you have a situation where both sides have dug in because on principle they both think that they are right. the one side, the republicans, thinking that they've already dealt with higher taxes, and now it's time to start looking at cuts. you have the democrats digging

in because they think there needs to be more taxes that come along with this. what should happen in order to get those two sides to compromise? because that's the real sticking point. they think compromise is anathema. >> well, it just surprises me on both sides. we have a fiscal problem. and for one party to think that, you know, less revenue is good to solve the fiscal problem, and the other one less expensives are good, makes no sense. we do have to do both. and again simpson-bowles committee, i think, decided, correctly, that the right ratio is about a dollar of revenue to three dollars of expenses, if we're going to be serious about reducing our deficit. and it's probably closer to one to four because simpson-bowles didn't address medicare. i think that's the point you have to have and then you can determine how much of the deficit you want to do over what time frame.

around i think it's clear to everyone except in washington that the only way you're going to get serious about expense reductions is with entitlement reform. and you hear people coming out saying oh, no, we can't touch entitlements. you cannot solve our fiscal deficit without that. and what's so shocking is we think we've done something with the fiscal cliff. we basically decreased the deficit by $40 billion on over a trillion dollar deficit. that's less than 4%. we have done nothing so far. >> dick, what do you think the role of business should be in this debate? the reason i ask is where so many business people, including yourselves and others, who lined up during the fiscal cliff debate, to really try to influence the discussion. you had the obama administration in its own way trying to reach out. but in the end, most executives i talked to said the obama administration just paid it lip service. they did these phone calls. they had us up, and then nothing happened. and virtually everybody, no

matter what party you were on, or part of, seemed to be ultimately disappointed. >> yes. i think we're -- i don't think you can talk to washington. i'm convinced now that neither party is listening. they're listening to themselves. and i really think what the business community has to do. in fact anybody who wants to see the right thing being done is just have to start talking to the general public about how serious this is and have them put pressure on washington, because no one else can do so. >> we talked to people like david walker who say that education is key. just as you're talking about. and really lay it out to people. but then we also see all those polls that show while people don't want their taxes to go up, they don't mind taxes going up on someone else and they definitely don't want their entitlements taken away. how do you deal with that? if the answer is to try to get those people to push back on washington it could be a difficult time getting there. >> yes. i think you have to simplify the message. and to me, the way -- one way,

perhaps, to do that, is to consider our nation as a family. and put it in very simplistic terms. this family has an income of $22,000 a year. taking away all the zeros. these are $2.2 trillion. just take away the zeros. it has an income of $22,000 a year. it's spending $38,000 a year. so, it's got a $16,000 debt every year. and it already has a credit card bill of $163,000. and so every year, that debt, that credit card bill is going up somewhere between $10,000 and $16,000, unless we do something about the deficit. now, that family will never pay off that credit card bill. it is going to go to their children and their grandchildren. and if we, including myself, if we want to have our standard of living, and our entitlements at

the level that we have today so that our children and our grandchildren have to pay it off, and have their standard of living fall, then, make that decision. and i don't think there are any grandparents and parents who want to put this debt on their children. and that's the kind of communication that we have to, perhaps, or something like that, to put it on the children and grandchildren, if we don't make a change. >> dick, while we have you -- actually barry knapp has a question. >> yes, thank you. taking on a little different tack if i could. everything you said makes perfect sense and i'm in complete agreement with it. but we were talking a little bit earlier about the mortgage market in light of the bank of america announcement. and there's, for me there's a bunch of issues that have created the highest mortgage credit standards we've had since arguably the great depression. we still haven't defined the qm rules, the qrm rules, the

capital requirements. we don't know where we're going with fannie and freddie. we have the average loan to value ratio on a fannie and freddie loan less than 70. in short of a nutshell because i know it's a complicated topic, what do you think the major impediments are to getting looser credit standards, more credit to first time home buyers? >> well, it is a big subject. but let me just say this, we've been making mortgages for 160 years. we know how to make mortgages. we know how to do that. we're the largest in this country. we know how to do that at appropriate risk and we are waiting for bureaucrats in washington to tell us how to make mortgages. qm. it doesn't make any sense. we know how to do it. the free market knows how to do it -- >> and that -- >> and we're letting government tell us that organization, here are the rules. we've been waiting for two years and they still can't tell us --

>> it's not the market that is the problem. the problem is washington, who hasn't defined the rules, and for some reason they want to define those rules. >> dick -- >> i don't understand why. >> the pushback on that would be that the private industry messed it up last time around. wells fargo, not in that position, didn't do that. but there were a lot of mortgage lenders that really got in way over their heads. we're giving loans to people who should have never qualified for those loans and the federal government had to step in and help the banks out with that. >> yes. but i would say, and i said this before, if it wasn't for fannie and freddie, this would have been a small problem. >> that's right. >> fannie and freddie and other government agencies guaranteed 70% of all these mortgages. the private sector never would have guaranteed 70% of those mortgages. >> i mean fannie and freddie between '04 and '08 bought 40% of every subprime deal. they bought the aaa tranche that no one else could possibly buy and enabled all this. >> becky do you understand what

i'm saying? >> i do. if you get rid of the government guarantee you won't have stupid lending out there. >> there's no way that we could have got anywhere close to the level we did, because nobody in the private sector would have guaranteed these mortgage rates. >> but dick, the government is now something north of 90% of the market. how -- i mean, do you wind it down gradually. or how do you get to a situation where you're not reliant on the government like that? >> yeah, what you do is you decide that a government is not going to be in the mortgage business in the sense of a hybrid. if it wants to be in the mortgage business it does it through fha and we've been doing that for a long time. everything else has to be privatized. so you wind it down by reducing by $100,000 a year the fannie and freddie guarantee such that it's about $650,000 today, and so five years from now, it's out of the business. and people are worried that 30-year mortgage goes away, and there will be no private mortgage.

jumbo loans have been around forever. and the difference between a conventional fannie and freddie rate on a mortgage, and a conventional -- and a jumbo has been about 25 basis points the way the markets work out. that's about $40 a month on a $250,000 mortgage. we can do this. we just have to do it. and we've been talking about it for four years and nothing has been done, which is about true of everything in washington. >> but do you -- >> nothing gets done. >> you have a plan and you have a way of laying it out and you get it but do you think that there will be something that's done on this? i mean, like you said, nothing's been done to this point. what changes that situation? >> how the market is coming back. we can grow the economy if we can just get this done. i think that the new chairman of the house financial services business is really on this, and i think, you know, perhaps something will happen. >> dick, while we have you here, one of your thoughts on this occ settlement we may be seeing this

week, $10 billion for the industry? i imagine wells is part of it. this would resolve some of the foreclosure issues that had so far been unresolved. is the $10 billion number, does that make sense? is that less than the banks would have paid had there actually been the foreclosures? >> i'm not really an insider at wells anymore and don't know the negotiations. i do think it needs to get settled. and i'm sure it's been negotiated, in a way that, you know, that's reasonable from both sides. and so the most important thing is, is that these pushbacks, these fines, get settled so that we can really take advantage of the environment, which is a good environment now for housing. and that if we get our economy moving, unemployment down, housing affordability is the best it's ever been. it can be an important ingredient for growth in the economy, if we just let it

happen. >> despite all we're talking about here, and i agree with just about everything you just said, i think isn't the economy actually growing reasonably well right now? i mean if you look at industrial production. you look at what's going on in terms of the bank stocks even if you want to use bank stocks as reasonable proxy for expectations of the industry. things are doing okay. are they not? >> no. >> they're not? they're not? despite the fact -- >> i think 2% growth, given the opportunities we have is half of what it should be. >> that's not what my question was. my question wasn't what's the potential of the economy. my question is isn't it getting better? aren't we repairing the economy? you would say no to that? >> no, we are. but we should be. this is the fourth year after a recession. >> true. >> this is the slowest growth we have ever had after one of the most difficult recessions. and we still have 7.7% or 8%,

7.8%, unemployed. they don't think it's a good thing at the moment. we could have jobs being created every day. we could be having growth of at least 3% if not 4%, and we will never solve our deficit situation at 1.5% or 2% growth. never. the only way we can really get our debt -- deficit under control, is by growth at 3% plus. and the only thing that's inhibiting that growth, in my opinion, is washington, d.c. >> dick, we want to thank you for joining us today and we hope to see you again soon. >> thanks, becky. >> thank you. >> happy new year, everybody. >> coming up some harsh words from warren buffett's protege about him. we've got the details of that coming up next. and as we head to a break take a look at u.s. an european financial stocks. bank stocks getting a big boost after global banking regulators relaxed rules on europe's largest lenders. [ male announcer ] this is joe woods' first day of work.

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welcome back, everybody. let's take a look at some of the stocks on the move. bank of america announcing a roughly $10 billion settlement with fanny may over mortgage repurchases. separately it says it expects a portion of the upcoming mortgage foreclosure settlement to be about $1 billion. amazon.com has been upgraded

from overweight to equal weight. and lowe's has been downgraded to sell from a hold. canaccord says the management realignment is what they are saying counterproductive and lowe's is not reviving enough benefit from the revamping of its stores. former berkshire hathaway executive david sokol had harsh words for his boss. the day after he was notified he wouldn't face regulatory action for his trading irregularities he wrote to "the wall street journal," it's almost nasty, i will never understand why mr. buffett chose to hurt my family in such a way but given that he is rapidly approaching his judgment day, i will leave his verdict to a higher power. i mean that is tough. that is very tough. in the weeks after sokol's resignation, warren buffett made some tough remarks himself about his former protege's trading actions calling them inexcusable

and inexplicable. let's get to phil lebeau now. electric car owners beware. you may be saving on gas but now a new tax may be coming your way. phil lebeau does join us now with that surprising and somewhat controversial story. phil? >> thank you very much, andrew. what we're talking about here is the vehicle miles traveled tax that a number of states are considering. essentially it comes down to this. when you look at what's happening in the state of washington they have just implemented this year a $100 per vehicle tax on all electric vehicles. now washington's e.v. tax revenue will go to the state tronz portation budget. this is the beginning of what we're hearing many states discuss about ways to make up for gas tax revenues that are under pressure due to the recession. remember over the last several years, because of the recession, people were driving less. also gas tax revenues for a number of states are threatened by more fuel efficient vehicles. you might be saying to yourself wait a second, aren't we paying a lot in gas taxes already?

yes there's 18.4 cents per gallon from the federal government that you're paying and then in addition, every state has their own state gas tax. but it varies wildly. there are some states like alaska where it's only 9 cents per gallon. compare that with new york and connecticut where it's up more than 40 cents per gallon. so it's all over the map here. but the bottom line is that all states are seeing wiggling revenue. so as a result we're seeing a number of states that are studying what they're calling a vehicle miles traveled tax. oregon and minnesota are conducting pilot studies looking at how do you tax people for the number of miles driven, and there's also the call for the federal gas tax to be raised. it hasn't been raised since 1993. erskine bowles in the past has been one of those advocating a higher federal gas tax. now he's kind of changing his tune a bit. >> i think generally not well received. there are lots of reasons not to do it and there are 4r09s of other ways to generate revenues. what we have to do is make sure that we generate enough revenues

to pay for the transportation spending that we currently are undertaking. >> and we're not doing that. no state -- i shouldn't say no state but very few states would tell you that they're comfortable with the budget in terms of the gas tax revenues that they're receiving relative to what they need to spend for upkeep of their roads and highways. so the bottom line is this, guys, if it's not happening right away in the future, almost everybody agrees we will see a vmt which is a vehicle miles traveled tax in some fashion. whether you pay it when you get your license plate or whether you pay it in terms of some kind of a monitor in your car as the cars become more connected. we will be seeing this in the future because the states are going to look for some way to make up for falling gas tax revenues >> thank you, phil. it may change a little bit of the equation there. we have a little bit of news out of citi. michael corbett, the ceo there announcing his new management team. jamie is going to be copresident

along with manuel demora. also announcing that jim coles will become ceo of citi's europe, middle east and africa reason. i think those are probably the biggest ones on the list. >> when we return we'll talk more about the events likely to drive the trading week. we're going to talk evgs, economic data and much more. and then tech companies set to unveil their latest gadgets at the consumer electronics show. we'll head to vegas for a preview and stock picks from a tech analyst. stick around. at northern trust, we understand that if you pick three people, odds are they'll approach everything in their own unique way -- including investing. so we help clients identify and prioritize their life goals. taking that input and directly matching assets and risk preferences against them. the result? a fully customized plan. we call it goals driven investing. you have unique goals. how about a portfolio specifically designed to achieve them? ♪ expertise matters. find it at northern trust.

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welcome back to "squawk box." let's get a check on the markets this morning. cnbc's rick santelli, options action contributor scott nation join us from the cme in chicago. on set this morning. scott nation. got to start with you, get your feelings on whether with the six, you know, being pretty quiet and a lot of us like to climb a wall of worry and maybe the complacency goes up as we get towards the high end of the range, do we keep moving higher to get the dow up to five-year

high as well for example? >> the vix would absolutely say yes. i mean it got crushed last week. and it was probably overdone. almost certainly overdone down 37% in about three days. i think the last week action in the vix was most of the vix dropped in a week in about 20 years. and with a vix that low there's certainly a ton of complacency. there's no fear. that's overdone. i mean with the s&p at 1460, as we go into earnings season, i would think that you would have to at least be a little worried. last earnings cycle, october, was not particularly good for the s&p. dropped about 2% during the course of october. and while we're past some of the worst of the political problems, and while somebody i know likes to say congratulations, you're normal. that's not always good. again, if normal means that we're going to focus on earnings and earnings aren't great, then the s&p is going to have a

little trouble. >> that's different, scott, write? i'm really interested in this vix thing. is it mean that we've kind of taken this every morning we wake up and we're on the brink of disaster and apocalypse trades off of it? i'm happy to deal with are earnings good, are earnings bad? is the economy good? is the economy bad? for many years that's the only discussion we used to have. now the discussion is, you know, when we wake up in the morning and are we going to die today, basically? and that seems like it's kind of going away. >> well, and that's why i say, that i think the feeling now is congratulations, you're normal. that may be normal, that may be bad. what we're going to focus on now is earnings. in october of last year s&p earnings estimates dropped from 99 and change to 98 and change. and if that drop ends up being -- ends up playing out in the earnings that we get over say the next month, then the s&p is probably a little overvalued right here. steve, i think you're going to get like you want but you may

not like the markets areaction. >> look. rick are you on board with this idea that the end of the world trade is at least a little bit stepped back in but not something at the forefront of the markets -- the decline in the vix? >> no. >> okay. >> no. i think that the vix is nothing but option volatility and i think since everybody's naturally comfortable long because we are dead. you said we worry about being dead, we are dead. we are zombies. so the natural course is that we're long stocks because of all the programs to boost stocks. so then why do zombies need to buy life insurance? they only need to do it when there's a lot of quorums in a row in congress. so you see that the people that buy the puts, which is the only insurance and it's not a leading indicator, certainly a lagging indicator but the vicks ends up with this grand crown of being a prophet, it isn't. they will start to buy the puts whenever they see jeopardy in

ongoing fed programs or jeopardy with regard to what congress may or may do. i think that will probably coordinate rather nicely with the talks about the fiscal cliffs and the nations of, you know, whether we're going to actually address this or not. or whether we're going to continue to, and i heard dick earlier from wells fargo. by the way, i'm glad he likes my removal of eight zoers. i did that as a santelli exchange in december of 2011. i'll look the it again today is that we steal from future generations. that's really the zombie insurance we need. >> scott, i think i think scott made a great point, which is i'll state it a little differently which is low volivity. the vix, is a necessary condition for the correction. if the fundamentals are weak, if we have a poor earnings season then you're set up for a tie. i think fundamentals are weak and i do think the fact that vols come off this much makes the market vulnerable for

near-term. >> i would say one of the main factors affecting the vix is actually fed liquidity. you go back over long periods of time you'll find that if the fed is providing liquidity, the vix tends to be low. i don't think that's a big deal. but look i think the time you really want to get worried is when individual investors, institutional investors are overinvesting. corporations are overinvesting. and the fed is withdrawing liquidity. that is a recipe for a bear market. i don't think we could argue that anybody is overinvesting right now. and the fed's not withdrawing liquidity. >> i just want to point out that we haven't really been talking about europe a whole lot. we did at least, and you guys had a great discussion in the 7:00 hour, about, you know, how do you gauge the debt ceiling debate? we did the fiscal cliff. they did a deal. how worried should i actually really be about the vault? i want to be optimistic here that we come off a little bit and at least, in part, taking

what rick said about the optionality, at least in part we've come -- >> that's in terms of butter boiling? >> right. >> you're not sitting on some big festering boil. we've come off the boil, which is at a boil for water -- >> folks -- >> right in there how i should respond. >> i'm not going to say anything. >> viewers -- >> i want to know the expression. >> i don't have a clue how to respond. >> i've never heard that expression before. come off the boil. >> you've been sitting on a boil -- >> i think -- >> all right. >> i'll respond any way you like. >> rick, steve, and scott nations. you can catch scott on fridays on "options action." coming up -- >> the hottest new tech gadgets you can't live without. the consumer electronics show kicks off in las vegas tomorrow. you'll be hearing a lot about it. coming up next, tech analyst brian white is going to give us a preview of some stock picks

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welcome back to "squawk" this morning. this week the tech industry is going to be buzzing about the ces, consumer electronics show, where an estimated 20,000 new products are expected to be launched. here with his tech stock picks for the new year, brian white managing director and senior analyst. good morning to you, brian. >> good morning. >> so let's go through the list. the most interesting to me is corning. because i don't always think of corning as a tech company but i

then realize how big a deal they are in all this. >> yeah, corning will probably be the most ubiquitous supplier at this trade show. so when we look at our television, our notebook, our tablet, there's two pieces of glass, and corning has about 50% market share. so they're definitely in those products. and also, some of these products have a third layer of glass, called cover glass, and that's corning's gorilla glass. so if you look at the ipad, the iphone, any of the tablets, smartphones, most of that is gorilla glass 20 keep it from breaking. >> who does corning compete against? you said they own 50% of the market. who are the others? >> the two japanese suppliers would be nippon electric glass, and asadi. so they each have about 20% share. so you'll see corning everywhere at the show this week. >> now the elephant in the room that's not at the show this year and never is at the show is apple. where are you on apple now? >> yeah, so, we still like

apple. you know, we went to last night, the cea had kind of a preview of what they think about in the new year in terms of growth, and what happened last year, and they said last year they had forecasted 4% growth in consumer leb tr electronics, it turned out to be 1%. really the two areas of growth are going to be tablets, 25% growth, and smart phones, 22%. so that plays very well in apple's portfolio. and like we've talked about, i've had minnie as a home run over in china. emerging markets is driving the smart phone and tablet growth next year. that's going to be good for apple with the ipad mini. and we also talked about something smaller in the iphone. and i think, you know, maybe it won't be an iphone mini right out of the bat but i think different form factor of iphones we'll see sometime in june -- >> brian clarify one thing because i did read your analyst report which got a lot of -- was really whizzed all around.

you say there might be a smaller one. will there also be a bigger one? >> exactly, it's a great point. i think you'll see a smaller and a bigger. so you might see a premium iphone and a cheaper iphone. one of the things you'll see at ces this week are what we call the embarrassing large smart phones. smart phones that are 5, 6 inches this week. it's going to be a big deal. i'm seeing this trend in asia and i think that's something apple has to address. >> brian, we got to let you go. real quick, samsung? i read that they may have, at least the gossip is, they may have a screen that won't break? it's a flexible screen? i'm excited if this is true. >> yes, so samsung has a huge product announcement and a lot of innovations. they're going to be showing off flexible displays. small and large, so smart phone and tv. but they're going to have a brand new product and i think that will be probably the most applicable thing to the earnings on samsung over the next year or two because it will go to market. >> brian white, thank you for w joining us this morning. >> coming up, several stocks on

the move this morning. we'll check in with jim cramer at the new york stock exchange. that's nextment ♪ ♪ ♪ [ male announcer ] don't just reject convention. drown it out. introducing the all-new 2013 lexus ls f sport.

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. welcome back to "squawk box." let's get down to the new york stock exchange. jim cramer and david faber join

us right now. the markets closing at -- at least the s&p closing at the highest levels since 2007. and you have the big game tonight. what's coming up on your radar screen? >> bank of america continues to astound, every time you think it's run out of ammo, dave and i have been working on this all morning, there are positives here. >> there are. of course, we're talking fannie today. there are still more to come potentially. but each one incrementally helps lower the risk profile. >> right. >> so we've got that. and coupled with basil, and the liquidity coverage ratios, changing favorably for the banks not implemented until 2019. >> nation star, they come in and buy what's a lot of bad loans. the surfacing business. when you look at this nation star, you realize the countrywide may get behind.

we may be putting that behind. the stock goes higher. >> you mention the basil, the changeses to basel that are out there this morning. we did talk to dick about that earlier this morning, too. he thinks this is definitely a good thing. what does it mean longer term? >> i think the united states is not to be focused to such discipline, with treasury secretary geithner working on it. the man is like mr. common sense. every time he's on your show, i just stop and listen, because he is about what can be done between government and banks. it's just reasonable. to do the most to get underwater people above water. they know what they're doing. >> yeah. at this point he would like to see the private sector take on more on mortgages and have it less be a part of government. >> we used to have a very vibrant securitization market that has been dormant for some time. a little bit in the commercial space, but not a lot in the residential space. >> we have a lot to hear from you guys and we'll hear from you

in just a few minutes. >> thank you. >> coming up, our guest hosts this morning will get the last word when squawk returns after this. tomorrow, on "squawk box," doom and gloom, sharing the outlook for the economy. the chairman of the president's advisory council on financial capability and ceo of aerial investments john rogers on what's working now, and making money work in 2013. "squawk box" starting at 6:00 a.m. eastern time on cnbc. i don't spend money on gasoline.

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and a 30-tablet free trial. "stock of the day". shares jumping up, the company reported the number of prescriptions shipped for the obesity drug in december increased 67% from the prior month. the news eases concern about the drug's slow start. vivus has had to deal with reimbursement hurdles and cumbersome mail order fulfillment practices as ordered by the fda. let's get back to our guest hosts for the